i have done the accounts for a local hairdressing salon for the past three years . the only staff were the owner and an apprentice the owner told me each week how many hours the apprentice ended to be paid for each week and i done the payroll and entered it into the accounts.
When I started the owner said that she would just take her salary out of the business each week and she has been taking £400 per week as well as paying her monthly car payments and a few other non business related bills through her business account.
Everything was fine until a few months ago when she decided to sell the business. She had a business advisor who looked at her accounts and haas told her they the money she has taken out for her wages should have been put through as wages and not drawings .i have explained to her that this is not correct and that it should be drawings .
Am I right to put the £400 per week through as drawings ,any advice would be appreciated
If a sole trader then she cant pay herself a "wage" so any money she takes should go to drawings so what you have done is right.
Tell the business advisor to go take and accounting course to find out the difference between a sole trader and a limited company before they give any more advice.
thank you for your reply . I knew I was right and I was beginning to doubt myself. I have explained the way it works to her before but she is believing what the advisor has been telling her and now says that her tax returns are wrong for the past three years As the drawings shouldn't be included on it even though I have told her many times otherwise .
Just relieved to know that I hadn't made a mistake , it is an awful feeling when you start to doubt yourself
... she is believing what the advisor has been telling her and now says that her tax returns are wrong for the past three years As the drawings shouldn't be included on it even though I have told her many times otherwise .
Maybe I'm getting the wrong end of the stick here but the tax return should focus on the net (taxable) profit of the business - the amount withdrawn as drawings would only be shown (if at all) by way of explanation of movements in the capital section. It sounds like the drawings might have been deducted in arriving at the amount to be taxed. That wouldn't be correct. How are drawings "included" on the tax return?
Sorry if I've misread what you were saying.
Edited section
I think I see it now. You mean that the drawings are "included" because they HAVEN'T been deducted in arriving at the profit figure - the advisor wanted them deducted as wages. You are, of course, correct in your treatment.
-- Edited by bro0010 on Wednesday 15th of January 2014 12:10:39 AM
The advisor is telling her that the drawings should be taken off the profit so say for example she has made a profit of £25,000 he says that her £18,000 drawings should be taken off to leave her with profit of £7,000.
Hi Stephen. It doesn't sound like he's telling you how to do the accounts but wishing the figures to be comparable to hairdressers which are incorporated.
I've heard of this before and think I ended up inserting the drawings/car total below and to the right of the bold, double underlined Net Profit figure; the implication being that you don't have to draw as much as this owner did.
Hi TIm.
Thank you, I think that is what he is getting at but now that he has told her this she is now thinking that I have not done her accounts correctly . As she is in a bit of a mess and still owes quite a bit of tax she is trying to say that I have not done the accounts correctly as all of her figures are wrong.
I was just wanting to make sure that I was right as I was starting to doubt myself
